This weekend’s Memorial Day holiday could be a test for the gasoline market, depending on whether drivers in reopening states hit the road and then keep on driving.

Gasoline demand is about 30% below where it was before states shut down in March. As the economy reopens, analysts are looking at traditional measures of supply and demand, but also some newer metrics like Apple mobility data and GPS-generated traffic congestion data.

Source: CNBC

“After many of these states opened up in early May, we saw a pretty big surge or improvement in the congestion data. By mid that next week, we actually saw a regression in many cities U.S.-wide,” said Michael Tran, global energy analyst at RBC. “When we look at the numbers, we saw a big surge then we saw a regression.”

Tran said though he believes gas prices are eventually headed higher, and the market should show improvement in fits and starts as economic activity picks up across the U.S.

Retail gasoline data is showing that demand has been varying greatly by region, depending on state shutdown rules, or more normal factors like weather. The GasBuddy tracking firm, for instance, found that demand nationally last Friday was up 11.8% from the previous Friday, and in some states it was way higher.

Gasoline demand is important for a couple of reasons. For one, it is an economic indicator linked closely to employment. Second, U.S. gasoline demand is a factor in the calculation of global oil prices, since U.S. gas consumption equals about 10% of daily oil demand.

Summer driving season

The summer driving season traditionally kicks off on Memorial Day weekend, but this year it will be far from normal. AAA said it will not issue a travel forecast for the first time in 20 years because of the impact of the coronavirus. Normally it estimates the number of people who would be traveling over the holiday weekend. Last year, 43 million people traveled, and the lowest point was during the financial crisis in 2009, when just 31 million traveled.

“I think Memorial Day is going to be the future litmus test for human behavior,” said Tran. He said if people who have been at home go out and take part in activities, they may feel emboldened to go out more, if they are still healthy two weeks later, the period of incubation.

“There’s improvement but over the past 10 days, 15 days, we’ve really flatlined. it’s really societal behavior, not state level policies that are driving gasoline demand. After many of these states opened up, you go out for dinner that first weekend but you don’t need to go out for dinner four nights in a week,” he said. Commuting to and from work had accounted for as much as 28% of gasoline demand prior to the shutdowns.

Gasoline prices have been rising as more drivers leave their homes. The average price at the pump was $1.90 per gallon of unleaded nationally, up from $1.81 per gallon a month ago, according to AAA. AAA said gasoline hasn’t been this cheap on Memorial Day since 2003.

Gasoline futures were nearly 2% higher Thursday, as oil rallied.

In Wednesday trading, gasoline futures surged early with oil prices. Traders have also been talking about how Apple mobility data this week showed a big jump in the U.S., back to just 5% under the baseline from before the shutdowns. It had been down as much as 60%. Apple data is based on the use of its maps.

But then gasoline futures plunged when government data showed the drop in demand for gasoline last week and an unexpected rise in supplies of 2.8 million barrels. RBOB futures erased all early gains and then traded lower on the day, ending down 0.1% lower at $1.0438 a gallon.

Driving inquiries are up

Tom Kloza, head of global energy analysis at Oil Price Information Service, said the government data matches what he is seeing in terms of demand at the retail stations his service monitors. But the week earlier surge over 7 million barrels a day may have been overstated and included some numbers that should have been categorized differently.

He said demand is improving but the pace has slowed, and that demand is now down about 30% from pre-shutdown levels. “It was pretty quick to go from [down] 50% to 35%. … I just don’t think we’re going to get the numbers we’ve become accustomed to,” he said. “There’s a lot of excitement about how the economy is kicking open and people are going to be traveling around more because of avoidance of air travel and mass transit. There’s too many people out of jobs, and [Treasury Secretary Steven] Mnuchin said we haven’t seen the peak in terms of job losses.”

John Kilduff, partner with Again Capital, said he saw the same when he looked deeper into the Apple data, which showed a weekend spike in activity in some places and then a decline.

“I think there was pent up demand. People were cooped up and took those drives to nowhere, but as we looked at the mobility you see how it drops off during the week,” he said. Kilduff said the jump in government demand data two weeks ago may be reflecting the same thing, a spike from pent up demand as drivers finally left their homes.

Patrick De Haan, head of petroleum analysis at GasBuddy, said he’s been seeing a gradual national pickup in retail sales every week since early April. He said drivers often fill up on Fridays, but the jump last week was big at 11.8%.

“So far, this week through the first three days, national demand is up 3.3%,” De Haan said. But he said demand was up 6.2% Sunday from the previous week, then up just 1.6% on Monday.

“We’re still running about 30% off normal,” said De Haan. He said there are big differences between the states. In New Jersey, which has just opened up parks and beaches, gasoline demand last Friday rose 15.5%. In Pennsylvania, demand was up 24%. In Georgia, which began to reopen in late April, saw a jump of 16.7%, but Texas, which was reopened then, saw a drop in demand of 0.7%. Demand in Florida last Friday was only up 1.8% over the week earlier, and California was up 0.6%.

Tran said traffic congestion showed something similar in Texas. Activity there surged initially when the state reopened but has not kept up the pace.

Source: RBC

He said longer term, the U.S. may imitate some of the behavior in China, as it reopened. “Cleary China has rounded the corner,” he said. In China, traffic congestion has risen in 12 of the 20 cities he monitors to levels above pre-virus shutdowns, as people appear to be abandoning public transportation.

“We’re headed in a trajectory with the reopening of the economy,” Tran added. “People are going to drive more as we go deeper into the summer. I think given a lot of work-at-home policies are going to remain in place.”